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The stories that matter on money and politics in the race for the White House
Taylor Swift’s endorsement of Kamala Harris for US president in an Instagram post signed “Childless Cat Lady” is having an even further-reaching impact than expected. Halfway across the world, investors in Asia’s battery makers have been dissecting public reactions to the television debate between presidential hopefuls Harris and Donald Trump searching for any hint of how the US election will play out.
For many, the biggest focus is on electric cars. Trump has said if he is re-elected, on day one he would end what he calls a mandate to sell electric vehicles to save the US auto industry from “complete obliteration”.
In recent years, EV battery makers have been one of the biggest beneficiaries of the Biden administration’s aggressive push for an EV transition. Current US targets mean that around two-thirds of all new cars and trucks sold will need to be electric by 2032. This means demand for millions of new batteries would reach 44mn by 2030 in the US alone to reach net zero emissions, according to think-tank RMI.
Elon Musk’s endorsement of Trump has raised speculation that the former president could soften his stance on EVs. But the fact that he remains a consistent and vocal critic has worried investors in EV-related stocks.
A Trump victory is being seen to bring a higher possibility of cuts to subsidies to EV battery makers and fewer federal tax incentives for EV buyers. His running mate, Republican vice presidential candidate JD Vance, supports repurposing those credits for gas cars instead.
Biden’s EV push has been backed with the billions of dollars of investment through the 2022 Inflation Reduction Act, with energy tax credits estimated to cost more than $1tn over the next 10 years.
South Korean and Japanese battery makers have been among the main beneficiaries of this investment. In recent years, Chinese manufacturers have started to dominate the EV battery supply chain, with as much as 80 per cent of lithium ion battery cells estimated to be made in China.
As that has started pushing South Korean and Japanese peers into an intensifying price war, US tax credits have helped provide a significant advantage over their Chinese rivals. Recent earnings reflect this. For Japan’s Panasonic, for example, these tax credits are estimated to have added $785mn, or around a quarter of total net profit in the fiscal year through March.
Thus it is understandable that signs of public support for Harris — even possibly Swift’s Instagram post — have helped to move markets in Asia. Shares of South Korea’s largest EV battery maker LG Energy Solution have surged by a quarter from its August low. Peers Panasonic and Samsung SDI are up a fifth. Foreign investors have been just as enthusiastic buyers of these stocks as local retail investors, with EV battery-related stocks accounting for five of the top 10 most bought stocks by overseas investors last week in South Korea, with trading activity closely tracking swing state polls.
Yet investors should be cautious of betting too much, too fast on the sector. Stock prices are historically expensive, with LG Energy Solution trading at over 100 times forward earnings, double the levels it traded at at the end of last year and at a significant premium to global peers.
Even with the favourable policies giving the sector a boost, EV battery sales have been disappointing. Operating profit at LG Energy Solution fell 58 per cent as sales fell 30 per cent in the latest quarter. At Samsung SDI, sales declined 24 per cent on EV batteries business weakness. The energy unit of Panasonic Holdings, which makes batteries, missed its operating profit guidance for the business year to March.
When excluding US subsidies from earnings, results would be significantly lower and would push some makers into an operating loss.
The outlook is even more troubling. Global EV sales are still growing, but the rate of growth has been slowing. Overcapacity is a risk with China using less than 40 per cent of its maximum cell output last year — despite more than half of the world’s EV battery demand coming from the country.
Battery makers suspending construction of new battery plants and delaying expansion plans this year highlight growing concerns that there is just not enough demand to support current prices and output.
All of this means that the decision to invest in EV battery makers may no longer be the easy bet it once was. The risks of policy shifts and overcapacity should be enough to give investors pause.